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The Country by Country Report and Its Effect on Turkish Tax Legislation

The Country by Country Report and Its Effect on Turkish Tax Legislation

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Reporting standards implemented within the frame of work conducted by the Organization for Economic Cooperation and Development (OECD) for the prevention of base erosion and profit shifting has increased the reporting obligations of multinational enterprises (MNEs). 

The Country by Country report (CbCR) – one of the three different reporting standards regulated by the OECD’s 13rd Action Plan – is required to be submitted to the tax authorities for the first time. This report, which is to be prepared by an MNE’s “Ultimate Parent Company,” may be included in the exchange of information between tax administrations in accordance with the “Multilateral Competent Authority Agreement on the Exchange of CbCRs.” The place and scope of the CbCR, both in international regulations and Turkish tax legislation, is worth review. 

CbCR and Exchange of Information

According to the OECD’s 13rd Action Plan, enterprises are considered a constituent part of MNE groups. An MNE group, which is a body of related entities, has an “ultimate parent entity,” which in turn is the “reporting entity” required to submit the CbCR to its relevant tax authority. As an exception to this general rule, secondary mechanisms would be accepted as appropriate (either in the form of local filing or through filing of the CbCR by a designated member of the MNE group acting in place of the ultimate parent entity), where: (i) no CbCR is required by the laws of the country where the ultimate parent is located; (ii) no competent authority agreement stipulating the exchange of information is concluded; or (iii) there is a failure to exchange the information in practice despite of the existence of a competent authority agreement. Although the CbCR is required to cover the full range of activities of all enterprises within the MNE group, including related entities located in other countries, the CbCR is submitted by the ultimate parent company solely to the state where it resides.  

Multilateral instruments have been developed to provide for the international exchange of the report. For this purpose, the “Multilateral Convention on Mutual Administrative Assistance in Tax Matters” (the “Convention”) has been created. Since the Convention orders participants to agree on the scope and method of an automatic exchange of information, a “Multilateral Competent Authority Agreement on the Exchange of CbCRs” (the “Agreement”) has also been prepared. As of September 2017, it appears from a review of various OECD publications that the Convention has been joined by 113 jurisdictions, and the Agreement has 65 signatories. 

CbCR in Turkish Legislation

In Turkey, the CbCR has been codified by the “Draft General Communique on Disguised Profit Distribution through Transfer Pricing Serial No 3,” which requires ultimate parent companies which are resident of Turkey to submit the CbCR. In addition, Turkish resident group companies of MNEs are also required to submit the CbCR even where the ultimate parent is located abroad, if: (i) there isn’t any competent authority agreement between Turkey and the state where the ultimate parent resides; or (ii) the state where the ultimate parent resides has not adopted the regulations related to CbC reporting into its domestic legal system.

Turkey has not yet signed the Agreement, but its participation in the Convention shows its willingness to adopt multilateral instruments. Therefore, following the enforcement of the draft communique, it is anticipated that Turkey will accelerate the process of engaging with the Agreement.


CbC reporting, which has been developed as a tool during the OECD’s BEPS-related studies, involves the exchange of information between countries regarding the amount of revenue, income tax paid, number of employees, stated capital, tangible assets, and so on, in each jurisdiction where group companies of a MNE group operate. Multilateral instruments have been developed in order to achieve this exchange. The Agreement, one of the multilateral instruments, which has been signed by 65 countries, has not been signed by Turkey yet since the standards continue to be adapted to local legislation. It is expected that Turkey will become a part of the CbCR automatic exchange regime with the draft communique entering into force.

By Ersin Nazali, Managing Partner, and Pinar Solyali, Tax Manager, Nazali Tax & Legal

This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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